Doug Henwood is the editor of Left Business Observer,
an economic newsletter that "aspires to monthliness". Based in New York, Henwood is a contributing editor to The Nation and the author of
Wall Street: How It Works and for Whom (Verso) and the forthcoming A New Economy? (Verso). He spoke to the ISR's Anthony Arnove about his new book and the current crisis in the U.S. economy.

WHAT'S THE subject of your upcoming book?

I STARTED it when the "New Economy" discourse was really running high. That rhetoric has taken quite a few blows since high-tech stocks and the dot-comers all fell apart. But the jumping off point was addressing a lot of the rhetoric around whether the United States had entered this miraculous period of a New Economy driven by information technology and a number of other institutional innovations. I argue that this rhetoric masks a number of economic problems the United States has, not to mention problems in the rest of the world. Faster computers are not doing much for life in sub-Saharan Africa, for example, where people can't even get a clean glass of water.

YOU'VE POINTED out that when you look at the expansion of the economy in the 1990s by historical standards, it's actually much weaker than earlier expansions.

PEOPLE WHO really celebrate the American economic "miracle" are only looking at essentially the second half of the 1990s and the early part of 2000. They forget that the early 1990s were a part of extended stagnation and weakness and the recovery from the recession of the Bush years. It was also a very slow recovery. Average household incomes continued to decline for the first few years of the expansion, which is unprecedented.

If you look at the expansion as a whole, it is still the weakest of all the post­World War II expansions, despite the faster growth of recent years. In addition, it's the most consumption-intensive expansion we've ever had. Households consumed 110 percent of their growth in income since the expansion started in 1991. That's without any kind of precedent in any other business cycle.

The only other thing that's remotely like it was just after World War II, when people had been deferring consumption because of the Depression and war. So there was a great deal of pent-up demand for consumer goods and you could understand that people were drawing down their savings and buying things that they couldn't for all those years.

People consumed even more during this expansion. It's because they have not been saving money. Those who have savings apparently have been spending it. People have also been borrowing like crazy. Oddly, the 1980s were denounced at the time as a decade of irresponsibility and reckless financial practices. The 1990s and even into the early "aughts," the growth in personal debt has been much more intense.

Also, corporate behavior has become much more reckless. Companies have been borrowing money like crazy to buy each other up, buy their own stock, do all kinds of things. So corporate balance sheets have deteriorated. But there's been very little concern about that compared to what happened at the end of the 1980s, when people were worried about it.

Also, the 1980s were a time when people worried about income polarization. While the last couple of years haven't been a time of increasing polarization, most of the decade was. The inequality seems to have stabilized in the last couple of years at a very, very high level--the highest level since the early 1930s.

Another thing that people worried about in the 1980s was the persistent trade deficits the U.S. was running, which meant that it was essentially borrowing money abroad to finance living beyond its means. That got worse in the 1990s. U.S. debt to the rest of the world expanded tremendously.

If the United States were just an ordinary country, it would be one with massive foreign debts, chronic trade deficits and, at least until recently, very overvalued financial markets and generally a reckless financial structure. In a lot of ways, that resembles Thailand in 1997, when the Asian economic crisis started. But the U.S. is not an ordinary country. It's hard to see just how it's going to resolve itself. The U.S. can't continue to run the kinds of deficits it does. Something's got to give. But when you're an imperial superpower, you're not subject to the same laws as when you're a small, poor country.

THE MEDIA talk every day about how inequality has narrowed because of the stock market expansion. Who has benefited from an expansion in the stock market or from options that companies issued?

DURING THE last few years, there have been across-the-board wage increases across the entire income distribution for men and women equally. The bottom fifth of the income distribution did a little better in the last few years than the rest of the income distribution. Black households did better than white ones. So, there's something of a narrowing of the racial gap. But that really has happened only in the last few years. In the early part of the decade, there was a very substantial increase in inequality. The only people who were doing well were the top 5 percent of the population, continuing a trend that had been in place since the early 1970s.

Part of the New Economy rhetoric and one of the things I take apart in the book is the claim that there was this great democratization of finance and of wealth because of mutual funds, 401(k)s, and a massive new involvement of people in the stock market. There are a couple of things you can say about that. One is that the number of people who actually got stock options is extremely small. We're only talking about a couple percent of the work force, and almost all of that is in the upper reaches of the work force and in just a few industries. A lot of people looked at what was happening in a few high-tech industries and assumed that this was happening everywhere. But your average McDonald's worker is not getting big stock options. Also, the options are extremely concentrated. If you're a senior executive or an extremely skilled programmer, you might get good options, but if you're a janitor, you're not going to get that.

More broadly, if you just look at the wealth distribution figures, those haven't changed very much. Through very different kinds of economies and political regimes, wealth distribution in the United States has remained remarkably unequal. Maybe ordinary middle- to upper-income households that have not been involved in the stock market before put some money in the stock market and maybe made a little money, but in most cases we're talking about relatively small amounts of money. With $10,000 portfolios, people might own a couple of stocks or a couple of mutual funds, but the basic fact is that the top 5 percent of stockholders hold about 90 percent of all the stock held by individuals, and that has barely budged. Rich people have all the assets and middle-income and poor people have all the debts. That hasn't changed.

THE SAVINGS rate is now negative for the first time since the 1930s. What's the composition of that debt? What consequences will that have if there is a recession?

A LOT of people dismiss the savings rate as irrelevant. It's another way of saying that people have been consuming more than their income. That's essentially what the entire U.S. economy has been doing for the last decade.

People are either borrowing more or are running down their savings. In either case, they're spending more than their income would normally allow them to. That says at least two things. One is that the great economic strength everybody has been celebrating has a foundation on unsustainable levels of consumption. Now that the economy is slowing, it also means that there's a great risk that people are going to find themselves up to their ears in debt without the means to pay for it.

Studies of people who go bankrupt, for example, show that they're ordinary folks in almost every way. What happens is that people are going along, and then something happens. They get sick. They lose a job. Suddenly the debt they thought was supportable becomes insupportable and they file for bankruptcy. Now that the economy is slowing, we're going to see less income growth, more layoffs. We're going to see just how vulnerable lots and lots of people are.

A couple of things have happened below the surface of the high aggregate numbers. One is that people have been borrowing like crazy on mortgages. It's not easy to get out of mortgage debt. You can't get rid of it in a bankruptcy the way you can with a credit card debt.

The other thing that's happened is that credit card debt has gone down the income ladder. It used to be credit card debt was concentrated in the middle- to upper-income areas. But in the middle and late 1990s, the banks were promoting credit cards to lower-income people who normally would have been ineligible. If you're making $7 or $10 an hour and you end up with credit card debts of $5,000, that's a very large burden. If you miss a few days of work or get laid off, or if a family member loses a job or gets sick, that's going to have serious consequences.

Also, we're going into what looks like a slowdown, possibly a recession, without welfare and entitlements for the first time, which would have both very dire social and potentially bad economic effects. It's also happening at a time when shareholders are assertive and are demanding that companies do everything they can to maintain profitability. They want companies to move quickly and ax five or ten thousand people. So it could be that we're going to see things happen much more quickly and intensely than we used to in the past.

And now we're about to see the bankruptcy laws massively tightened. For all of our history, the U.S. has always been very debtor friendly. We don't have a vigorous socialist or social democratic tradition, but we have long had a belief in the equalizing powers of easy credit. But now, thanks to extremely heavy lobbying by the financial industry, particularly the big credit card issuers, it's going to become a lot harder to get your debts erased, a reversal of a couple of centuries of U.S. history. The social and economic consequences of this are hard to anticipate, but it could be rather ugly.

THE FINANCIAL Times wrote recently, "It is no longer a question of when the U.S. recession will begin, but how long it will last and how far it will go."1 What's your assessment of that?

THERE ARE a lot of indicators that really do look like the early stages of recession. There have been very sharp drops in the level of consumer confidence. The level of business confidence, too, is actually falling very rapidly. The Conference Board does a quarterly survey of CEO confidence. It's at its lowest level since 1980, which was a time when the economy was in a recession. It also has fallen very dramatically. These numbers fell very sharply in November and December of last year and January 2001. Several leading indicators in employment are all showing signs of weakness.

Regardless of whether we enter a formal recession or not, something does seem to have changed. The kind of boom that we saw for the second half of the 1990s and into the early part of 2000 seems to be over, both on the financial side and the real side of the economy. I don't know what's going to follow it, whether we're looking at something like a classic business-cycle recession that will be over in a year and then it's back up again, or whether that experience of the 1990s was really a bubble and its bursting is going to be something much nastier, something more like what Japan has experienced in the last ten years, extended stagnation with no recovery in sight.

I think it's complicated by the international situation in that, with the United States so dependent on foreign capital to finance consumption, investment, and our whole mode of economic life, if foreign investors change their minds and start pulling money out of the country, it's hard to say what kind of effect that would have.

THERE HAVE been numerous layoff announcements lately.

LAYOFFS PICKED up very dramatically at the end of last year. January is often a very heavy month for layoffs because nobody wants to lay people off before Christmas. So they wait until after New Year's. But I think there's no doubt that with a slower economy we're seeing fewer new hires and more fires. February's numbers were lower than January's, but that's not surprising, given that January's usually the big layoff month. They've continued into March.

THE QUESTION is how much more? How severe is it going to be?

A LOT of people on the left have for a long time seemed to welcome the idea of a crisis or a depression, as if it were going to be good for politics. I don't believe that. Creating a depression is a very high price to pay. We're talking about putting millions and millions of people out of work. That's not a good idea. Short of a 1930s-style depression, which did result in some kind of mass political mobilization, moderately bad times are terrible for politics. There was tremendous entrenchment and anxiety and rightward movement in the 1970s and into the 1980s. People felt off balance, threatened. Nobody wanted to do anything that would threaten a job or rock the boat politically. You just wanted to do what you could to get by and not cause any trouble.

You could say that a byproduct of the boom has been an upsurge in political activism in the last five years or so, what's happening on campuses with the sweatshop and living wage organizing, union solidarity, the kind of solidarity that college students are showing with labor unions. Workers feel more confident that if they kick up a fuss, it's easier to find a job than it used to be. They also hear all this stuff about what a great economy it is and they say, where's mine?

BUSINESS WEEK recently had a cover story "Too Much Corporate Power?"2 It noted that the number of people who say corporations have too much power is around 80 percent. So, you're seeing indications of a kind of anger or concern about these issues of polarization of wealth and power.

BUSINESS WEEK has been interesting. Since the Seattle demonstrations against the World Trade Organization (WTO) in 1999, they have been very concerned. They commissioned polls right after the protests and found a great deal of public sympathy for--if not smashing Starbucks' windows--at least complaining about the fact that the big guys are doing well and everyone else isn't. They've continued to follow this. Basically their line is that we've got to make globalization work for everyone or we're in trouble. Exactly how they plan to go about that they don't really say. But the fact that they're concerned is very interesting. And the fact that they keep doing these polls is also very helpful. It shows there is a considerable degree of discontent below the surface of what's supposed to be a very strong economy.

Also, surveys of workers have shown a real deterioration in attitudes in the last five years. People feel their jobs are worse. They're getting treated worse. They keep hearing about how great the economy is and yet they're having a hard time paying the bills. A 5 percent real wage increase over the course of several years is better than a 5 percent real wage decline, but still, it's not enough for people to be able to keep up with rising expenses.

An interesting political question about the downturn is what this will do to people's attitudes, whether people will get angry and are more likely to rebel if things turn sour, or if they will get scared and just fall into line. I think it's very hard to predict. But the kind of rebirth of political activism that we've seen in the last several years has a feeling of some really long-term shift about it. After years of resignation and torpor, people are showing signs of life, especially younger people. The level of activism on college campuses now, involvement in protests, is amazing. The big bourgeoisie can't have a meeting now without being accompanied by hecklers and protesters. That's wonderfully cheering news, even if it's not as ideologically developed as I'd like to see it. It's just wonderful that there are these people out there causing trouble. It's a very interesting moment right now, especially with a president who is under a cloud of illegitimacy.

I think a lot of that political critique, the so-called antiglobalization movement, was hard to imagine even two or three years ago. There's so much going on. I think a lot of the critique is rather underdeveloped, but the fact that it's there, that there are people who are pissed off and protesting and that all these new modes of organization, solidarity, and communication are developing. It may be that the great long run of capitalist triumphalism is over and that economically and politically we're in a new era.

WHAT WOULD you point to as some of the weaknesses in the antiglobalization movement?

PART OF it starts with the name. I have no problems at all with globalization itself. What is wrong with internationalization of life? Anybody coming out of a Marxist tradition would welcome the creation of international solidarity and world literature. There are wonderful passages in the Communist Manifesto about the progressive aspects of capitalism creating this kind of cosmopolitan culture. That's something to be welcomed, not hated. Obviously, the kinds of conditions under which globalization is practiced now is extremely unequal and exploitative and ecologically unsustainable and ruinous. It's capitalist globalization that's the problem, not globalization in itself.

The word globalization often serves as a very imprecise euphemism for capitalism and imperialism. What we've seen in this period of so-called globalization is this incredible assertion of mostly U.S. imperial power on the rest of the world, operating through multilateral organizations like the International Monetary Fund, the World Bank, the United Nations, and now the WTO. The U.S. and to a lesser extent its junior partners in Western Europe have been pushing this reasserted imperial agenda on much of the world. That's the problem.

The problem is the dismantling of social protections around the world, the opening up of foreign economies to imperial economic and political exploitation. That's the problem. I wish people would start talking about that more often and start showing more historical awareness of the fact that capitalism has always been a global and globalizing system. There are plenty of precedents for the level of internationalization that we're seeing now. The imperial mechanisms are different from what they were in the days of classical high colonialism, but there's still a good deal of continuity between that world and the present one we're living in.

Just by focusing on globalization misses a lot of the domestic aspects of what's going on. A lot of what's happened to the American poor and working class is of domestic origin. It wasn't globalization or any foreign influences that led Reagan to fire the air traffic controllers in PATCO, to break the union. That's not what got Clinton to sign the end-of-welfare bill. These are all domestically driven political concerns.

Politicians always like to point to forces coming from outside as a way of relieving themselves of the responsibility, but the globalization language distracts attention from where this is really coming from. And it also concedes a certain degree of inevitability to it. Clinton said late last year that globalization is like a force of nature, like wind and rain, that just can't be resisted.

That's just nonsense. We're human beings making a decision. This is a socially created economic and political system we live under. It's not irresistible in that sense. But I think by adopting some of that language and just putting negative signs in front of it, you're conceding this almightiness and not really paying enough attention to the fact that there are conscious economic and political decisions being made by real human beings that you can point to.

WHERE DO you think activists can effectively concentrate their energies right now?

MY EXPERIENCE in talking with people involved in the broad antiglobalization movement and campus activism is that they're extremely open to very radical analyses. They're hungry for some sort of explanation of what's going on in the world, some kind of theoretical explanation of what it's all about, some way to connect all the dots of all these separate little concerns and see how they all fit together, from police brutality to the living wage movement. Any kind of political analysis or theory that could connect these dots would be very welcome.

I think that a lot of the young people are extremely open to any kind of radical education, organization, and analysis. I think it's a wonderful time to have one of those up your sleeve. I'm not trying to impose it on people, but converse. Agitate, educate, and organize, as the old saying goes.